With the interest in Kick Out investment plans continuing to rise, we give you our Top 10 reasons to consider this type of investment, which also helps to explain why they are proving so popular with investors.
1. Defined returns v defined risk
The investor has the benefit of knowing at outset the conditions that need to be met in order to provide the stated returns, thus providing a defined return for a defined amount of risk, which can be easily compared with alternative investments.
2. FTSE linked
Plans linked to the FTSE 100 Index provide a return against what is widely recognised as the proxy benchmark for most investment managers. The historical volatility is also familiar to many investors.
3. Potential to beat the market
Most Kick Out plans will mature early if the level of the FTSE at the end of the year is higher than its starting value (sometimes subject to averaging). This means that even if the FTSE has only gone up by a small amount, you would still receive the full growth rate and with many currently offering double digit returns, this will be far higher than the market.
4. ‘Defensive’ plans
In addition to those investments which kick out in the event that the FTSE is higher at the end of each year, there are also plans that will still provide a competitive return even if the FTSE falls by up to 10%, catering for varying investor views of what will happen to the FTSE in the future.
5. No hidden charges
With kick out plans, all of the charges are taken into account in the headline return so there are no hidden surprises. This should be compared to a typical UK equity fund which will often have an initial charge of up to 5.5% and total annual charges of 1.66% on average (source: Morningstar).
6. A cost-effective option
The costs associated with the management of funds apply each and every year (in both actively managed and tracker funds), which helps to explain the number of funds which fail to outperform the FTSE, especially over a five year period. This ongoing cost is not a feature of kick out plans, since all charges are included in the headline return.
7. A disciplined approach
The mechanics of these investments remove the need for the investor to worry about when to come out of the market, since the decision is made for them by the pre-determined conditions and future market conditions. When the plan matures, the investor then has the opportunity to reassess their options.
8. Conditional capital protection
Your original capital is returned if the plan kicks out, but should this not occur, typically capital will only be returned provided the FTSE has not fallen below 50% of the starting level of the index. To put this into context, if the starting level of the FTSE is 6,000, it would have to fall to 3,000 before your capital would be at risk, a level not seen since early 1995. However, also remember that past performance is not a guide to what will happen in the future.
9. Fully capital protected options
This type of plan is also available with full capital protection, offering the potential for returns which are higher than those currently available from the more traditional fixed rate bond, as well as Financial Services Compensation Scheme eligibility (up to £85,000 per individual per institution).
10. Tax efficient - ISA friendly
All of the kick out plans detailed by us on www.fairinvestment.co.uk are available for individuals to use their annual stocks and shares ISA allowance and will also accept investment ISA transfers. For the current tax year the annual allowance is £11,280 per individual.
Current market offering
The current market covers a range of counterparties, collateralised versions, ‘defensive’ plans and the potential for high returns when balanced with the conditional capital protection included. This gives a variety of plans from a number of different providers, allowing the investor plenty of choice.
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No news, feature article or comment should be seen as a personal recommendation to invest.
Different types of investment carry different levels of risk and may not be suitable for all investors.
Some structured investment plans are not capital protected and there may be the risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated, in which case you may not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.
Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
© Fair Investment Company Limited